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Research: Financials
Record’s Q424 trading update demonstrated continued growth in assets under management equivalent (AUME), which will support management fee growth into FY25. In FY24, AUME grew 17% to US$102.2bn, setting a new milestone in business scale. Net inflows for FY24 were US$6.8bn (FY23: US$9.1bn) or 8% of opening AUME. Performance fees of £5.8m matched the record FY23 figure, and we expect this to offset the negative product mix in FY24. We have reduced our FY24e EPS by 1%, which is affected by £2.4m in IT restructuring and impairment charges announced in March 2024. New CEO Dr Jan Witte is putting a sharper focus on the business, and we have upgraded our FY25e EPS by 5% in anticipation of efficiency improvements after a period of elevated cost inflation.
Record |
AUME momentum and a sharper focus |
Trading update |
Financial services |
16 May 2024 |
Share price performance
Business description
Next events
Analyst
Record is a research client of Edison Investment Research Limited |
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Record’s Q424 trading update demonstrated continued growth in assets under management equivalent (AUME), which will support management fee growth into FY25. In FY24, AUME grew 17% to US$102.2bn, setting a new milestone in business scale. Net inflows for FY24 were US$6.8bn (FY23: US$9.1bn) or 8% of opening AUME. Performance fees of £5.8m matched the record FY23 figure, and we expect this to offset the negative product mix in FY24. We have reduced our FY24e EPS by 1%, which is affected by £2.4m in IT restructuring and impairment charges announced in March 2024. New CEO Dr Jan Witte is putting a sharper focus on the business, and we have upgraded our FY25e EPS by 5% in anticipation of efficiency improvements after a period of elevated cost inflation.
Year end |
Revenue (£m) |
PBT |
EPS* |
DPS** |
P/E |
Yield |
03/22 |
35.2 |
10.9 |
4.37 |
3.60 |
14.9 |
5.5 |
03/23 |
44.7 |
14.6 |
5.81 |
4.50 |
11.2 |
6.9 |
03/24e |
45.4 |
12.8 |
4.91 |
4.51 |
13.2 |
6.9 |
03/25e |
44.9 |
14.8 |
5.74 |
4.75 |
11.3 |
7.3 |
Note: *EPS is diluted. **DPS excludes special dividends.
AUME surpasses the US$100bn milestone
Record’s AUME has reached a new milestone of US$102.2bn in FY24, 78% above the US$57.3bn recorded just five years ago. This growth is the result of the company building deeper relationships with existing clients, widening its product capability and adding new clients. The higher AUME forms a base for management fees in FY25, which have been affected by a negative mix shift in FY24. The core strategy of building out higher-margin asset management products remains at an early stage, but we note US$0.3bn of related inflows in FY24 and expect to hear more from the new CEO at the full-year results in June.
Efficiency improvements expected in FY25
Record has experienced double-digit underlying cost inflation (ie excluding variable compensation) in both FY23 and FY24. In the Q4 statement Dr Witte highlighted the ongoing review of group expenditure, and we have reduced our cost estimate by 9% in FY25. Taking into account the weaker revenue-mix base from FY24, this leads to a 5% increase in our FY25e EPS, to 5.74p, with our FY24 estimate down 1% to 4.91p.
Valuation: Premium valuation versus peers
Record trades at premiums of 10% and 16% to its peers on calendarised P/E and EV/EBITDA multiples, respectively. We believe this reflects the superior net AUME inflow performance compared to a mixed sector in which some companies have had material persistent outflows of AUM. The dividend yield is competitive with its peer group.
AUME momentum
Net inflows drive performance over time
Record has achieved impressive growth in the business over the last six years. AUME has increased by 78% to $102.2bn in FY24, a compound average growth rate (CAGR) of 12% (Exhibit 1), driven by net inflows into AUME. Exhibit 2 shows that net new money has averaged 6.0% of opening balances of AUME, more than double the market and other effects at 2.7%.
Exhibit 1: AUME development
US$bn |
FY19 |
FY20 |
FY21 |
FY22 |
FY23 |
FY24 |
FY25e |
CAGR FY19–24 |
Dynamic hedging |
3.1 |
2.5 |
9.3 |
10.6 |
14.7 |
16.5 |
17.2 |
40% |
Passive hedging |
48.2 |
50.3 |
61.5 |
62.8 |
63.8 |
76.4 |
78.0 |
10% |
Currency for return |
2.7 |
2.6 |
3.9 |
5.0 |
3.9 |
5.5 |
6.0 |
15% |
Multi-product |
3.0 |
3.0 |
5.2 |
4.5 |
5.2 |
3.4 |
4.4 |
3% |
Cash and futures |
0.3 |
0.2 |
0.2 |
0.2 |
0.1 |
0.4 |
0.4 |
6% |
Total AUME |
57.3 |
58.6 |
80.1 |
83.1 |
87.7 |
102.2 |
106.0 |
12% |
Source: Record reports, Edison Investment Research
The net inflows have come from deepening relationships with existing clients as well as from new clients, and the strategy of diversifying into higher-margin products has paid off. Exhibit 1 shows that dynamic hedging and currency for return products have attained CAGRs of 40% and 15%, respectively, for instance, and these products have revenue margins 5–7x that of passive hedging.
Exhibit 2: Components of growth in AUME
FY19 |
FY20 |
FY21 |
FY22 |
FY23 |
FY24 |
FY25e |
Average FY19–24 |
|
Net new money |
(4.5) |
4.6 |
9.7 |
2.4 |
9.1 |
6.8 |
2.8 |
|
% opening AUME |
-7.2% |
8.0% |
16.6% |
3.0% |
11.0% |
7.8% |
2.7% |
6.0% |
Market, FX, etc |
(0.4) |
(3.3) |
11.8 |
0.6 |
(4.5) |
7.7 |
1.0 |
|
% opening AUME |
-0.6% |
-5.8% |
20.1% |
0.7% |
-5.4% |
8.8% |
1.0% |
2.7% |
Source: Record reports, Edison Investment Research
Exhibit 3 illustrates the growth in average AUME and the associated average fee rate. The drop in the average fee rate in FY24e and FY25e is explained by the mix effect of one large high-margin client shifting from a currency for return strategy into a passive strategy about halfway through FY24. This affects both years, with roughly half in FY24e and the full annualised impact in FY25e, but results in a higher margin than in FY21 and earlier. Record’s strategy is to increase the management fee revenue margin over time, as it grows higher value-added products including in asset management.
In spite of the decline in fee rate and resulting low management fee growth in FY24e, we expect average management fees to accelerate into FY25 due to strong average AUME growth (Exhibit 4).
|
Exhibit 3: Average AUME and average management fee rate |
|
|
Source: Record reports, Edison Investment Research |
|
Exhibit 4: Management fee momentum into FY25e (£m) |
|
|
Source: Record reports, Edison Investment Research |
New CEO brings a sharper focus
As CEO elect, Dr Witte announced the IT platform and team restructuring in March 2024 prior to his official appointment on 1 April 2024. The discontinuation of development of the ‘R-platform’ (a new technology platform) using external consultants will incur an exceptional impairment charge to capitalised costs of £1.9m. IT development will be in house and Record has restructured the IT team, including appointing senior personnel with the relevant expertise..
Dr Witte highlighted a sharpened focus across the business in the Q4 statement including ‘resource allocation’ and we have factored a 3.3% decline in underlying operating expenses (ie excluding variable compensation) into our forecasts. This restores the operating margin to 32% in FY25e, roughly in line with FY23 and moving towards Record’s mid-30s ambition. Our FY25 EPS forecast increases accordingly by 5% (Exhibit 5).
Record will announce more detail on the company’s strategy at the full-year results on 28 June.
Financials: 5% upgrade to FY25e EPS
Full-year results will be announced on 28 June, however we have incorporated information from the Q324 and Q424 trading updates into our forecasts.
Our FY24 EPS estimate is broadly unchanged, as better-than-expected performance fees of £3.3m in H224 have offset negative mix effects in management fees, as well as £2.4m in impairment and restructuring charges related to the technology platform and team restructuring.
Performance fees are inherently unpredictable, and we had previously modelled in £2.5m for FY24e. According to the latest trading update, management expects FY24 performance fees of £5.8m, maintaining the previous year’s record level. We believe we are conservative in maintaining our £1.5m performance fee projection for FY25, which is roughly half the five-year average of £2.8m (Exhibit 4).
As discussed above Record had also indicated a negative mix shift in the Q3 update, with one large client moving $4bn from a multi-product strategy to a passive strategy, which has affected our management fee estimates by a negative 3% in FY24e and a negative 5% in FY25e, reflecting the full annualised effect partially offset by growth in AUME.
We have reduced our previous administrative expense forecast for FY25 by 9% to reflect the restructuring actions in IT and a focus on efficiency across the business following a period of high cost inflation.
Our overall estimate changes are summarised in Exhibit 5. FY24e EPS falls by 1% on a higher tax rate and FY25e EPS rises by 5% as expense reductions more than offset a lower revenue forecast.
Exhibit 5: Estimate revisions
Revenue (£m) |
PBT (£m) |
EPS (p) |
DPS (p) |
|||||||||
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
Old |
New |
% chg |
|
03/24e |
43.4 |
45.4 |
5% |
12.8 |
12.8 |
0.3% |
4.96 |
4.91 |
-1% |
4.55 |
4.51 |
-1% |
03/25e |
47.1 |
44.9 |
-5% |
14.1 |
14.8 |
5.2% |
5.46 |
5.74 |
5% |
4.70 |
4.75 |
1% |
Source: Record, Edison Investment Research. Note: EPS is diluted. Dividend excludes any special payment.
Valuation
Although Record has a different kind of business to most asset managers, we compare its valuation with its peers in Exhibit 6. Record trades at premiums of 10% and 16% to its peers on calendarised P/E and EV/EBITDA multiples, respectively. We believe this reflects Record’s net AUME inflow performance compared to a mixed sector in which some companies have had material persistent outflows of AUM. The dividend yield is competitive with the peer group at 6.8%.
Exhibit 6: Peer group multiples
Price |
Market cap |
P/E 2024e |
EV/EBITDA |
Dividend yield |
|
Ashmore |
199.2 |
1,420 |
16.4 |
8.9 |
8.5 |
City of London Investment Group |
4.4 |
221 |
N/A |
N/A |
9.6 |
Impax Asset Management |
482.0 |
639 |
14.2 |
8.8 |
5.7 |
Jupiter |
84.9 |
463 |
8.5 |
0.7 |
8.1 |
Liontrust |
716.0 |
465 |
9.8 |
5.2 |
10.1 |
Man Group |
257.6 |
3,868 |
7.9 |
6.1 |
3.3 |
Polar Capital |
550.0 |
557 |
13.4 |
6.8 |
8.4 |
Schroders |
373.0 |
6,013 |
11.5 |
8.2 |
5.8 |
Average |
1,706 |
11.7 |
6.4 |
7.4 |
|
Record |
66.0 |
131 |
12.9 |
7.4 |
6.8 |
Source: LSEG, Edison Investment Research. Note: Prices as 10 May 2024.
Exhibit 7: Financial summary
Year end 31 March (£'000s) |
|
|
2019 |
2020 |
2021 |
2022 |
2023 |
2024e |
2025e |
|
|
|
|
|
|
|
|
|
|
PROFIT & LOSS |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
24,973 |
25,563 |
25,412 |
35,152 |
44,689 |
45,374 |
44,869 |
Operating expenses |
|
|
(17,089) |
(17,996) |
(19,333) |
(23,945) |
(29,925) |
(30,280) |
(30,365) |
Other income/(expense) |
|
|
(8) |
82 |
41 |
(372) |
(293) |
(2,550) |
(150) |
Operating profit (before amort. and except.) |
|
|
7,876 |
7,649 |
6,120 |
10,835 |
14,471 |
12,543 |
14,354 |
Finance income |
|
|
113 |
88 |
33 |
21 |
127 |
300 |
472 |
Profit before tax |
|
|
7,989 |
7,737 |
6,153 |
10,856 |
14,598 |
12,843 |
14,826 |
Taxation |
(1,559) |
(1,365) |
(802) |
(2,225) |
(3,259) |
(3,339) |
(3,707) |
||
Minority interests |
|
|
0 |
48 |
0 |
0 |
0 |
0 |
0 |
Attributable profit |
|
|
6,430 |
6,420 |
5,351 |
8,631 |
11,339 |
9,504 |
11,120 |
Revenue/AuME (excl. perf fees) bps |
|
|
4.9 |
4.9 |
4.8 |
5.6 |
5.6 |
5.4 |
5.2 |
Operating margin (%) |
|
|
31.5 |
29.9 |
24.1 |
30.8 |
32.4 |
27.6 |
32.0 |
Average number of diluted shares outstanding (m) |
|
|
198.1 |
197.1 |
196.2 |
197.3 |
195.3 |
193.6 |
193.6 |
Basic EPS (p) |
|
|
3.27 |
3.26 |
2.75 |
4.52 |
5.95 |
4.98 |
5.83 |
EPS - diluted (p) |
|
|
3.25 |
3.26 |
2.73 |
4.37 |
5.81 |
4.91 |
5.74 |
Dividend per share (p) |
|
|
2.30 |
2.30 |
2.30 |
3.60 |
4.50 |
4.51 |
4.75 |
Special dividend per share (p) |
|
|
0.69 |
0.41 |
0.45 |
0.92 |
0.68 |
0.00 |
0.40 |
Total dividend (p) |
|
|
2.99 |
2.71 |
2.75 |
4.52 |
5.18 |
4.51 |
5.15 |
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
2,161 |
4,868 |
5,153 |
6,084 |
7,813 |
7,564 |
7,944 |
Intangible Assets |
|
|
288 |
470 |
420 |
562 |
1,390 |
1,950 |
2,600 |
Tangible Assets |
|
|
761 |
751 |
683 |
401 |
377 |
267 |
287 |
Investments |
|
|
1,112 |
2,472 |
3,046 |
3,447 |
4,901 |
4,448 |
4,448 |
Other |
|
|
0 |
1,175 |
1,004 |
1,674 |
1,145 |
899 |
609 |
Current assets |
|
|
31,427 |
31,149 |
28,045 |
27,141 |
28,924 |
28,719 |
29,858 |
Debtors |
|
|
7,562 |
8,704 |
8,006 |
9,883 |
14,373 |
14,583 |
13,919 |
Cash |
|
|
12,966 |
14,294 |
6,847 |
3,345 |
9,948 |
14,136 |
15,939 |
Money market instruments |
|
|
10,735 |
7,958 |
12,932 |
13,913 |
4,549 |
0 |
0 |
Other |
|
|
164 |
193 |
260 |
0 |
54 |
0 |
0 |
Current liabilities |
|
|
(6,158) |
(6,955) |
(5,992) |
(6,210) |
(7,630) |
(6,603) |
(6,079) |
Creditors |
|
|
(2,736) |
(3,009) |
(3,426) |
(4,721) |
(6,011) |
(5,153) |
(4,919) |
Financial liabilities |
|
|
(2,621) |
(2,191) |
(1,696) |
0 |
0 |
0 |
0 |
Other |
|
|
(801) |
(1,755) |
(870) |
(1,489) |
(1,619) |
(1,450) |
(1,160) |
Non-current liabilities |
|
|
(29) |
(901) |
(407) |
(1,085) |
(816) |
(673) |
(673) |
Net assets |
|
|
27,401 |
28,161 |
26,799 |
25,930 |
28,291 |
29,007 |
31,050 |
Minority interests |
|
|
60 |
132 |
0 |
0 |
0 |
0 |
0 |
Net assets attributable to ordinary shareholders |
|
27,341 |
28,029 |
26,799 |
25,930 |
28,291 |
29,007 |
31,050 |
|
No of shares at year end |
|
|
199.1 |
199.1 |
199.1 |
199.1 |
199.1 |
199.1 |
199.1 |
NAV per share (p) |
|
|
13.7 |
14.1 |
13.5 |
13.0 |
14.2 |
14.6 |
15.6 |
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating cash flow |
|
|
7,026 |
6,543 |
6,798 |
11,355 |
12,263 |
10,303 |
12,347 |
Capex |
|
|
(72) |
(243) |
(230) |
(75) |
(272) |
(120) |
(250) |
Cash flow from other investing activities |
|
|
(561) |
1,513 |
(6,210) |
(3,392) |
7,498 |
4,818 |
(328) |
Dividends |
|
|
(5,517) |
(5,888) |
(5,290) |
(6,512) |
(9,095) |
(10,258) |
(9,176) |
Other financing activities |
|
|
(613) |
(943) |
(2,368) |
(5,019) |
(3,942) |
(553) |
(790) |
Other |
|
|
205 |
346 |
(147) |
141 |
151 |
(2) |
0 |
Net cash flow |
|
|
468 |
1,328 |
(7,447) |
(3,502) |
6,603 |
4,188 |
1,802 |
Opening cash/(net debt) |
|
|
12,498 |
12,966 |
14,294 |
6,847 |
3,345 |
9,948 |
14,136 |
Closing net (debt)/cash |
|
|
12,966 |
14,294 |
6,847 |
3,345 |
9,948 |
14,136 |
15,939 |
Closing net (debt)/cash inc money market instruments |
23,701 |
22,252 |
19,779 |
17,258 |
14,497 |
14,136 |
15,939 |
||
AUME ($bn) |
|
|
|
|
|
|
|
|
|
Opening |
|
|
62.2 |
57.3 |
58.6 |
80.1 |
83.1 |
87.7 |
102.2 |
Net new money flows |
|
|
(4.5) |
4.6 |
9.7 |
2.4 |
9.1 |
6.8 |
2.8 |
Market/other |
|
|
(0.4) |
(3.3) |
11.8 |
0.6 |
(4.5) |
7.7 |
1.1 |
Closing |
|
|
57.3 |
58.6 |
80.1 |
83.1 |
87.7 |
102.2 |
106.1 |
Source: Record accounts, Edison Investment Research
|
|
Research: Healthcare
Actinogen announced a capital increase of up to A$8.9m on 3 May, consisting of a A$5.0m (gross) placement along with a shareholder rights offering (‘entitlement offer’) designed to raise up to A$3.9m (gross) from existing shareholders. The closing date of the rights offer is 29 May and, given that Actinogen shares are currently trading at c A$0.028, we assume full exercise of the rights offering in Q424 (Q2 CY24). The company expects that the proceeds (assuming full exercise of the rights offering) will extend its operating runway beyond the interim results release of the first 100 patients of the XanaMIA Phase IIb study in cognitive impairment (CI) in patients with mild-to-moderate Alzheimer’s disease (AD), expected in mid-CY25. These results and the results from the XanaCIDD Phase IIa study in patients with CI associated with major depressive disorder (MDD), expected in early Q3 CY24, represent major potential value inflection points, and Actinogen is now funded past these two key catalysts. Our risk-adjusted net present value (rNPV) is A$544m (vs A$528m previously).